Dollar rate keeps rising

It is disconcerting news that against the backdrop of sluggish export and slower remittance inflow during the last three months, Bangladesh currency Taka has been losing value against US Dollar. And as expected, such devaluation of taka has been giving rise to issues that go against the interest of the importers of the country. Bangladesh Bank data shows that the interbank exchange rate stood at Tk. 85.65 per dollar on Oct 17, up from Tk. 85.60 on Oct 14. The exchange rate was Tk 84.81 on Aug 2. 

Because of the continued escalation of dollar rate, import cost is increasing thereby creating an additional burden on local importers to foot bills. They feel this trend would negatively impact prices of commodities in the local markets. Which in plain language means prices of consumer goods would increase in the local markets as the import cost would rise drastically due to the hike of US dollar rate.

What is disturbing is the allegation coming from the importers that some banks are taking advantage of the ongoing dollar crisis and intentionally charging a high rate when importers approach them to open letters of credit. The importers say that commercial banks should not charge exorbitant dollar rates against L/C opening and that Bangladesh Bank should look into this issue with due seriousness. Many experts also believe Bangladesh Bank or the finance ministry should intervene immediately in this regard otherwise consumer and industrial products will see a price hike, and the pace of industrialisation will be jeopardised.

On their part, bankers explain that the US dollar value was increasing as import payment had rebound due to the reopening of the country’s economy and business. According to Bangladesh Bank data, from July to August of the current fiscal, LC settlement stood at $10.77 billion, up by 45.31 per cent from the same period of the previous fiscal year.

Eminent economists say the rising price of commodities in the global market pushes up the cost, which affects the import spending of the country. They say the declining trend of remittance and the end of deferral support on payments for imports were other reasons behind the volatile situation in the foreign exchange market. The inflow of remittance dropped for the fourth consecutive month in September this year, as the illegal cross border transaction known as “hundi” saw a rise following strict restrictions. The flow of inward remittances declined by nearly 28 per cent to $1.87 billion in July from $2.60 billion in the same month of the previous fiscal year. The second wave of the ongoing Covid-19 pandemic is blamed for this situation.  

 Meanwhile, as part of the stabilisation process, the central bank has already started to sell US dollars on the market through different commercial banks. As per the BB data, from August to Oct 12, the bank sold $1,193 million to the country’s banking sector. They have offered foreign-currency liquidity support to the banks to settle their genuine import-payment obligations. In fact, Bangladesh Bank is likely to continue providing such foreign- currency support to the banks in line with the market requirement.

Experts are of the opinion that depreciation of taka against US dollar would boost Bangladesh’s export earnings. But the Export Promotion Bureau records show that Bangladesh’s overall export earnings decreased to $3.47 billion in July from $3.91 billion in the same period of the previous fiscal year. Reportedly, declining exports in the last two months was a cause of concern at the central bank, which led to the decision for devaluation. And the BB sources reveal that the bank was in favour of further devaluation, but considering the fact that it would impact imports of essentials they decided not to go for further devaluation of taka. On the other hand, economists say that in consideration of the exchange rate in the informal market and the nominal exchange rate, there is more scope for devaluation. They say that though there was pressure for currency depreciation, Bangladesh Bank did not go for it, which resulted in the loss of competitiveness in the global market.